Trading Strategies - Posted on Tuesday, October 5, 2010, 2:52 PM GMT +1

8 Comments


Oct Tuesday 5

Model ‘TradingTheOdds’ live on Covestor

On August 13, 2010 I opened an (real-time, independently-audited) account with Covestor and Interactive Brokers (the latter providing Covestor with a real-time view into my trading activity and cash position for live replication in mirroring accounts), and I started trading intraday and end-of-day signals a couple of days later (after testing a pairs trading strategy until the middle of September), utilizing unleveraged and leveraged major market and sector ETFs for day trading and swing trading purposes.

By having my own capital at risk and making my trading activity (execution price, transaction costs), performance and current position(s) – including allocation size – fully transparent to the public, I stick to one of the core principles of financial advisers (market professionals) and model managers, bloggers, market timers (all individual investors like me), and others trying (leave alone claiming) to be superior investment decision-makers ( Michael Stokes at MarketSci has a good article about that, see If it’s not Audited, It Doesn’t Count ).

But please take into account: By trading for a living, my core business is trading (CBOE) VIX futures and options (I don’t blog about it), and by going public with TradingTheOdds my main thrust is

  • to raise confidence and interest in trading with the odds (methodology, concept …) ,
  • to show that it might be possible to consistently achieve returns in excess of average market returns on a risk-adjusted basis, in face of the efficient-market hypothesis ,
  • to compete against other models and model manager, be it financial professionals or market timers (individual investors) – competition is a permanent stimulus for improvement, and always good for business,
  • to keep the blog (design, layout and content) going on a professional level (new ideas, the math and stats, style of writing, …), and
  • not to be sneezed at – to make money (for having done a hard job that hopefully pays well), not by building a large group of followers at Covestor (see my P.s. below), but to immediately and directly capitalize on my findings (setups, and historical probabilities and odds).

TradingTheOdds on Covestor can be found here , and a snapshot of the then current model performance is always presented in a widget container on the right side of my blog. Please don’t wonder that I currently do not appear on the Covestor rankings: Members do not appear on the rankings until they have three months of history on the site.

Unfortunately there’re a few restrictions giving me a hard time. In order to protect customers and provide live replication in mirroring accounts, Covestor currently doesn’t allow for (among others):

  • trading outside regular market opening hours,
  • trading future and options (only US equities, ADRs, ETFs and Closed End Funds),
  • counter trades (e.g. buy/sell) in the same security within a 15 minute time frame,
  • using margin greater than twice net liquidation value (no portfolio margin),
  • (stop buy or stop sell orders (no replication possible).

That means: No trading on GLOBEX (e.g. special situations before the open, after the close or overnight), no use of ES E-mini futures (higher leverage, lower transaction costs, better bid/ask spreads, high liquidity and almost no slippage), and regularly no opening trade immediately before (market moving) special events (e.g. the FOMC announcement) – I won’t be able to close the trade for the next 15 minutes even if a highly profitable exit price would’ve been provided in the meantime.

In addition, the model’s performance on Covestor will never match those (intraday and end-of-day) probabilities and odds shown in my daily postings and/or Twitter updates due to transactions costs, slippage, bid/ask spreads, leverage and position sizing, timing (execution time, if there has been an execution at all), and and and. Being a good analyst, market timer or system (market model) engineer doesn’t necessarily mean one has to be a good trader as well (often quite the opposite applies).

_____________________________

P.s.: Despite Covestor‘s business model, I do not receive any kind of compensation, income, portion of the revenues, options or rebates in kind for my contributions to Covestor of any sort whatsoever (I waived a potential compensation due to tax issues).

Successful trading,

Frank

Disclosure: Long UPRO (ProShares UltraPro S&P500) at time of writing.

________________________________

If you might want to be instantly notified about what’s happening in the markets and at TRADING THE ODDS, I encourage you to subscribe to my RSS Feed or Email Feed, and (or) follow me on Twitter.

________________________________

Remarks: Due to their conceptual scope – and if not explicitely stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

________________________________

Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

________________________________

Comments (8)

 

  1. Aly Somji says:

    Congratulations Frank!

    Looks like you’re off to a nice start.

    Best wishes with this,
    aly

  2. Josh says:

    “Despite Covestor‘s business model, I do not receive any kind of compensation, income, portion of the revenues, options or rebates in kind for my contributions to Covestor of any sort whatsoever (I waived a potential compensation due to tax issues).”

    Hi Frank,
    Would you mind clarifying that? I see that there is a 2.3% annual fee for subscriptions to this system. So do you mean that you don’t receive any portion of that or are you saying that you don’t receive any other kind of referral fees or undisclosed kickbacks? Btw, how much of the 2.3& does Covestor keep if the latter?

    Thanks and good luck your new endeavour!

    • TradingTheOdds says:

      Josh,

      exactly, I don’t receive any portion of that (but that was my decision, not Covestors, due to some tax issues in Germany; I’d have to pay a lot more to my tax advisor to do all the necessary paperwork regarding income from the US, I’d need a US taxpayer ID as well, and and and).

      A model manager’s compensation depends on (of course) the number of mirrored accounts and respective net liquidation value, see http://site.covestor.com/share.

      Best,
      Frank

  3. John says:

    Frank, given your ability to trade future, options, etc, a better business model for you might be selling signals at http://collective2.com. In either case, good luck and thanks for sharing your ideas.

    John

  4. Nathan says:

    Frank, I have a feeling within 3 to 6 months you will be leading everyone at the covestor website. Thanks for posting all of this. I enjoy your website and I am learning a lot. Thanks !

  5. Aly Somji says:

    Frank, I agree with John.

    Go with http://collective2.com over Covestor.

    At least give it a try for the reasons John gave.

  6. Justin Lewis says:

    Frank, I cannot find this model on Covester?

Leave a Reply

Your email address will not be published. Required fields are marked *